Buy City Union Bank; target of Rs 170: ICICI Securities

ICICI Securities is bullish on City Union Bank has recommended buy rating on the stock with a target price of Rs 170 in its research report dated April 21, 2024.

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April 23, 2024 / 11:57 IST

sell

26 Aug, 2025 12:21

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ICICI Securitie's research report on City Union Bank

Despite broadly stable 1.5% RoA over the last 7 quarters, CUBK’s stock has underperformed peers due to concerns about subdued loan growth / NIM performance in arguably one of the best NIM cycle in recent times. Over the past couple of quarters, the bank seems to have addressed legacy issues impacting loan growth (better internal control, run-down of KCC gold loan, etc.) and has overhauled its IT systems (new LOS running in-parallel with the support of BCG and Newgen) improving TAT, customer experience and risk monitoring. Importantly, the bank has hired lateral talent and intends to chase growth via new products (both secured and unsecured) while augmenting non-branch channel.

Outlook

CUBK stands favourably on LDR (at 81% as of Q3FY24 vs 84% YoY), LCR (264%) and tier 1 (>20%). Receding drag from legacy issues, improved IT systems and focus on new products / channels impart healthy visibility of growth accelerating to 13-15% YoY vs 5-6% YoY in FY24E. While cost to income is likely to see pressure due to elevated investments in the business, we believe the bank should see broadly stable RoAs of 1.4-1.5% for FY24-26E, driven by easing credit costs. Valuation is attractive at 1.3/1.1x FY25/26E ABV, significantly lower than its 3-year mean of 1.5x. We upgrade CUBK to ADD (from Hold) with a revised target price of INR 170 (vs INR 150), valuing the stock at 1.25x FY26E (prior 1.1x). Key monitorable: MD&CEO succession in Apr’26 (still 2 years away).

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